When Intuit and its market-leading Quicken accounting software finally stumbled onto the Internet just under two years ago, many observers said that the company Scott Cook led and co-founded had already missed a golden opportunity. But after a host of acquisitions and strong moves toward new Internet-related product lines like electronic tax filing, Intuit and the Internet seem to be cooking at last. Intuit's latest earnings report shows that the company posted $US125.3 million in revenues from its online business in fiscal 1999, which ended on July 31, up 157 per cent from 1998, making Intuit one of the world's top Internet companies. Cook, who last year moved from chief executive officer to chairman, talked to IDG's Michael Drexler about how his company will build financial products that blend Intuit's accounting-software prowess with the real-time connectivity of the InternetIDG: When many people talk about Intuit, they talk about its history. What is the lesson Intuit learned from Quicken and its late migration to the Web?
Cook: The lesson is that the Internet doesn't spread its benefits evenly. Some businesses are helped mightily by the Internet and others are helped to a lesser extent or not at all.
Online book sales are really big. For example, I am on the board of Amazon.com . . . which is really big. On the other hand, online fast food sales . . . well, there is a delivery problem. So McDonald's isn't sweating on the Internet, because the Internet helps some businesses hugely and others not at all.
Our tax business will be helped mightily by the Internet. We can do connections for banks and brokers to the government for electronic filing; we now have the complete US tax code. All the forms and everything are up on the servers so you don't need to buy any software. The Internet was made for taxes and taxes were made for the Internet.
Business accounting is helped in one way and not in another. It is helped because of the connections we can build between the accounting edge and payroll systems; tax filing, for example, and many others.
On the other hand, the Internet doesn't affect the fundamental engine because accounting is repetitive - you do it all the time, every day, every week and it needs to be really fast. And what is the Internet not?
Very fast. And a hard drive going right to your screen is instantaneous.
So you have to look where the Internet really helps things and focus there. We figured that out early, so on the consumer side our early push was to not just put Quicken on the Web, because Quicken is also something that you use all the time and you kind of want fast. We used the Internet to build new things that we never could do in disk-based software.
In the US you can come to Quicken.com and shop for, qualify for and buy a mortgage. You can instantly know the rates today, this morning. The software is customised to let you know which mortgages you qualify for, and that is then run against the underlying models of the lenders - we have 15 lenders, big mortgage lenders who are working with us on this. So out of hundreds of different kinds of mortgages, we show you just the ones you qualify for and rank them however you want and show you the rate this minute. You can't do any of that in disk-based software, it would never work, it is impossible.
So that's a complicated answer, but it is best to develop things where the Internet helps you most.
Earlier this year, Intuit acquired payroll-service provider Computing Resources. How has that relationship been going?
They are the back end. We build the front end, the Internet connection, the connection into the accounting.
[Computing Resources was] an independent service provider of payroll which did the back end for us, hooking into the government and the banks. We launched that service in October last year and it went well enough for us that we said we really want to buy that back-end supplier so that we have both the front and back end.
It is going quite well. We do a lot of acquisitions - probably 15 over the last five-and-a-half years. Some work better than others, this is one that is working well.
Your successor as CEO, Bill Harris, has been quoted recently as describing Intuit's business focus, even the nature of the company itself, as `confused'. Is Intuit confused? What is the nature of Intuit today?
It is basically the uniting of two things which when combined and when you add a lot of entrepreneurialism creates great solutions for people's financial lives. And those two things are software engines and the Internet. Together, you can do things that revolutionise people's financial lives.
Like the thing we are working on in the US. People who have filed US income taxes, they know just how fun that is, how many hours that can take. Particularly for a small business, or a professional with investments, it can take hours and hours and hours.
We are building systems now that can make the entire tax process digital from end to end. We take out all the paper. So all of the forms that come to you in January are all electronic, they go right into our tax system and so you just sit back, hands off the keyboard - this isn't finished yet, this is what we are building - you don't do anything except identify yourself. [The system] collects all the data, fills out all the forms, shows you the end result, and you say, `yep, that's what I did last year', hit the button and it is electronically filed to the government. In two minutes.
So we are taking a process that takes hours of pain and making it two minutes. That shows the power of the revolution you get when you combine computing engines with software engines that we build, together with the connectivity of the Internet. Now I don't know a simple word for that. We kind of invented `e-finance' because there wasn't any other word.
What about Wall Street's valuation of Intuit? There are those who think that Intuit as a whole is undervalued compared to the supposed value of its parts. Why is that?
That is a question best asked of Wall Street. Perhaps the best recent report on that was done by Credit Suisse First Boston where it had an analyst go through and add up the parts and she said we should be worth $US115 a share.[Intuit's stock price recently rose 5.5 per cent to more than $US97 per share.]If you take out our $US5 billion market cap, we have $1.7 billion in cash and marketable securities; just subtract that off the top, that gives you more than $3.2 billion for the business.
E-loan has a market cap of about a billion, and we do more loans, more mortgages than E-loan does. InsWeb, I think they have a market cap of about 700 million and we have much better technology than they do. CBS' MarketWatch.com has a market cap of about half a billion, and we have about twice the number of page views they have.
And just adding those companies' pieces up, that gives you $2.2 billion. And I haven't even counted the payroll service - Paychecks has a market cap of $7 billion, I think. Now just give us one-tenth of that market cap. Now we are much smaller than Paychecks, but we have only been in the payroll business since October last year. So we take one-tenth of theirs which is another $700 million, and so that gives you roughly $3 billion of market cap on Internet businesses, and our total market cap, minus the cash, is $3.2 billion. Which means all of our software businesses, you get for free. Oh yeah, and I didn't even count the Internet tax business!
So does that mean that Intuit is a buy? Is that the conclusion, or is there some deeper issue here?
Maybe Wall Street thinks I can't communicate to them.
But Wall Street is not dumb [concerning] what's going on. I think some of it is that we announced in 97 a bunch of Internet things saying we've seen the light, the future is the Internet. And Wall Street correctly said come back to us when you have results. And in 98 we were building a lot of that, so we didn't quite have results. In 99 we now have our first results, and they're pretty good.